Exhibit 99.1
Arthur J. Gallagher & Co.
JANUARY 2006
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
Except for the historical information and discussions contained herein, statements contained herein may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially, as discussed in the company’s filings with the U.S. Securities and Exchange Commission, including but not limited to the following: Gallagher’s commission revenues are highly dependent on premiums charged by insurers, which are subject to fluctuation; lower interest rates reduce Gallagher’s income earned on invested funds; the alternative insurance market continues to grow which could unfavorably impact commission and favorably impact fee revenue, though not necessarily to the same extent; Gallagher’s revenues vary significantly from period to period as a result of the timing of policy inception dates and the net effect of new and lost business production; the insurance brokerage industry is subject to a great deal of uncertainty due to investigations into its business practices by various governmental authorities and related private litigation; the general level of economic activity can have a substantial impact on Gallagher’s renewal business; Gallagher’s operating results, returns on investments and financial position may be adversely impacted by exposure to various market risks such as interest rate, equity pricing, foreign exchange rates and the competitive environment; Gallagher’s revenues and net earnings may continue to be subject to reduction due to the elimination of certain contingent commission arrangements on January 1, 2005 and related developments in the insurance industry; and Gallagher’s effective income tax rate may be subject to increase as a result of changes in income tax laws, unfavorable interpretations of such laws or changes in crude oil prices or developments resulting in the loss or unavailability of IRC Section 29-related Syn/Coal Credits. Gallagher’s ability to grow has been enhanced through acquisitions, which may or may not be available on acceptable terms in the future and which, if consummated, may or may not be advantageous to Gallagher. Accordingly, actual results may differ materially from those set forth in the forward-looking statements. For a further discussion of certain of the matters described above see Item 1A, “Risk Factors” in Gallagher’s Annual Report on Form 10K for the year ended December 31, 2006.
Certain Non-GAAP Financial Measures
This presentation includes certain information that may be considered “non-GAAP financial measures” within the meaning of SEC regulations because it is derived from Gallagher’s consolidated financial information but is not required to be presented in financial statements that are prepared in conformity with U.S. generally accepted accounting principles (GAAP). Consistent with SEC regulations, a description of such information is provided below and a reconciliation of certain of such items to GAAP is provided on our web-site at www.ajg.com.
Pretax earnings from continuing operations for 2006 and 2005 were adjusted in this presentation to add back charges related to litigation and contingent commission matters and claims handling obligations and to eliminate the impact of medical and pension plan changes. Charges in 2006 related to retail contingent commission related matters and medical plan changes totaled $9.0 million (or $5.4 million after tax) and $7.5 million (or $4.5 million after tax), respectively. Charges in 2005 related to retail contingent commission matters and claims handling obligations totaled $73.6 million (or $44.2 million after tax) and $15.0 million (or $9.8 million after tax), respectively. In addition, Gallagher recognized a pension curtailment gain of $10.0 million (or $6.0 million after tax) in 2005. There were no such charges or gains in 2001 to 2004. These adjustments, which Gallagher believes are for non-recurring items, were made to GAAP earnings from continuing operations in 2006 and 2005 in order to calculate earnings from continuing operations before litigation and contingent commission related matters, claims handling obligations and medical and pension plan changes. In addition, total revenues and pretax earnings from continuing operations exclude retail contingent commissions and are on an as originally reported basis for all periods presented in this presentation.
Gallagher believes the “non-GAAP financial measures” included in this presentation provide meaningful additional information, which may be helpful to investors in assessing certain aspects of Gallagher’s operating performance and financial condition that may not be otherwise apparent from GAAP. Industry peers provide similar supplemental information, although they may not use the same or comparable terminology and may not make identical adjustments. This non-GAAP information should be used in addition to, but not as a substitute for, the GAAP information.
Arthur J. Gallagher & Co.
World’s 4th Largest Insurance Brokerage and Risk Management Services Firm
Brokerage – We sell a full range of property/casualty and employee benefit products and services, provide access to wholesale, reinsurance, captive and excess/surplus lines markets and provide generalized risk shifting consulting to our domestic and international clients
Risk Management – We provide our domestic and international self-insured clients, as well as insurance companies that outsource their claims department, with outsourced P/C claims payment and claims management services that assist them in managing risk exposures and reducing claims payment costs
Strengths
Unique corporate culture
History of growth
Financial flexibility
Solid balance sheet Strong cash flows
No corporate related debt; still maintaining a $450M credit facility
Excellent producer development and retention Proven acquisition strategy
165 deals, 1986 through 12/31/06
Lean, yet activist, corporate staff
Differentiators
Culture Driven Success
Client-first focus
Local company feel with global capabilities Team-based approach Committed to growth Emphasis on professional development
Niche strategy – industry-focused practice groups International network of brokers and agents Innovative – created alternative market “Network” philosophy of service that benefits clients Strong claims management capabilities
Client Base
Large Clients
Mid-Market Clients
Smaller Clients
Client Base
Brokerage
Large Clients
Mid-Market Clients
Smaller Clients
Client Base
Brokerage
Risk Management
Large Clients
Mid Market Clients
Smaller Clients
9
Segments
2006 Revenues*
Brokerage 69%
Financial Services 5%
Risk Management 26%
2006 Pretax Earnings*
Brokerage 88%
Financial Services (17)%
Risk Management 29%
*See important disclosures regarding Non-GAAP measures on page 3
10
Brokerage Segment
Domestic Retail Brokerage 55%
Employee Benefit Brokerage 18%
Wholesale, Reinsurance, & International Brokerage 27%
Revenues as of 12/31/06 – See important disclosures regarding Non-GAAP measures on Page 3
11
Domestic Retail Brokerage
We broker P/C insurance and risk shifting programs and provide risk management services for commercial, not-for-profit, institutional and governmental enterprises Organized geographically via profit centers Matrix of 25 different industry-specific niche/practice groups
12
Domestic Retail Brokerage
13
Employee Benefit Brokerage
We broker employee health, welfare and retirement insurance programs and assist in communication, administration and compliance consulting services Organized geographically via profit centers Matrix of 7 different industry-specific niche/practice groups
14
Employee Benefit Brokerage
15
Wholesale Brokerage
We provide access for hard-to-place coverages, including surplus lines, to over 10,000 independent P/C brokers and agents Organized geographically via profit centers Over 60% of business is from non-Gallagher sources
16
Reinsurance Brokerage
“Gallagher Re” provides:
P/C, Life, and A&H expertise
Executed primarily through Treaty, Facultative and Program reinsurance services Expert product knowledge with multinational servicing capabilities Advisory, analytical and technical resources
Operations in UK, US, Bermuda, Singapore and Australia
17
International Brokerage
Our teams based in US, UK and Bermuda provide US and International clients with access to international and alternative markets
Gallagher has an international network of independent brokers in 120 countries
Gallagher believes in global partners
“best available” broker in every country around the world is a better value for clients
18
Wholesale, Reinsurance and International Network
19
Brokerage Segment
Growth Drivers
Organic
Experienced hires and teams Grow our own
Increase industry-specific practice units
Strategic fit acquisitions
Geographic expansion Expertise expansion
Network-wide coordination
Deep industry and product knowledge
20
Brokerage Segment
Profit Drivers
Maximize client retention
Align performance compensation Control operating expenses Leverage technology Commitment to quality
21
Brokerage Segment
Growth & Profits (in millions) $1,100 $559 $900 $700 $500 $300 $100
16% CAGR
2001 2006
Total Revenues*
15% CAGR
$200 $150 $100 $50 $0
$103 $168
2001 2006 Pretax Earnings*
2006 pretax margins of 16%
*See important disclosures regarding Non-GAAP measures on Page 3
22
Risk Management Segment
“Gallagher Bassett” provides outsourced P/C claims payment and management services for self-insured clients as well as insurance companies that outsource their claims department We DO NOT chase catastrophe overflow claims One of the world’s largest claims administrators– Business Insurance Over 80% of business is from non-Gallagher sources Network (vs. dedicated unit) philosophy
23
Risk Management Segment
24
Risk Management Segment
Growth Drivers
Purely organic Unbundled trend International footprint Deep client intimacy Leverage technology
25
Risk Management Segment
Profit Drivers
Maximize client retention Control operating expenses Leverage technology Commitment to quality
26
Risk Management Segment
Growth & Profits (in millions) $500 $400 $300 $200 $100 $0
12% CAGR
$232 $401
2001 2006 Total Revenues*
2006 pretax margin of 14% $60 $50 $40 $30 $20 $10 $0
12% CAGR
$29 $56
2001 2006 Pretax Earnings*
*See important disclosures regarding Non-GAAP measures on Page 3
27
Financial Services Segment
Segment in run-off mode since 2002 In December, sold ownership in:
Home office building
Low income housing developer
In January, sold 90% ownership in airplane leasing company Eliminated substantially all related debt Continue to monetize asset management business Current uncertainty with coal investments
Purchased financial hedge on 1/17/07 Regardless, law expires end of 2007
Future cash flows will be used to buy brokers, pay dividends and repurchase stock
28
Financial Services Segment
Net Assets and Financial Guarantees*
$400 $350 $300 $250 $200 $150 $100 $50 $362 $89
2002 2006* $60 $50 $40 $30 $20 $10 $0
Net Assets*
Tax Adv Other Mgmt Asset
Low Income Housing $3M Alternative Energy $43M Asset Alliance $28M Other $8M $ In Millions *As of 12/31/06
29
2006 in Review
Brokerage
Developed a new business model
Revenue growth of 10%—pretax earnings growth of 31% Internal revenue growth of 6% Improved pretax margins by 2.5% Closed 11 acquisitions—annualized revenues of $54m Settled Multi-District Federal class action litigation
Risk Management
Revenue growth of 8%—pretax margins of 14% Lower than expected claim frequency—industry trend
Financial Services
Nearing end of investment disposal process
15th straight year of dividend increases Repurchased 1.2 million shares
*See important disclosures regarding Non-GAAP measures on Page 3
30
Where We Are Going
Revenue and pretax growth of 15% per year Target enterprise-wide margin expansion to 20+% Solid organic growth Maximize shareholder returns through dividends and stock repurchases
31
How We Make It Happen
Developing consistent growth through
Hiring sales-oriented producers Strong internship program Active acquisition campaign Solid customer partnerships Ongoing operational efficiencies Disciplined capital allocation
32
Summary: Why Invest?
22 Year Growth Story:
1984 IPO
(Restated for stock splits) 12/31/06
Stock Price $1.72 $29.55
Market Cap $57 M $2.9 B
Tangible Net Worth $23 M $334 M
Annual Dividend/Share $.03 $1.24*
*Indicated annual dividend
33
Summary: Why Invest?
Brokerage & Risk Management Revenues (In millions) From Continuing Operations* $1,600 $1,400 $1,200 $1,000 $800 $600 $400
15% CAGR
$1,103 $961 $791 $1,470 $1,343 $1,232
2001 2002 2003 2004 2005 2006
* | | See important disclosures regarding Non-GAAP measures on page 3 |
34
Summary: Why Invest?
Brokerage & Risk Management Pretax Earnings (In millions) From Continuing Operations* $250 $200 $150 $100 $50 $156 $132 $184 $211 $193 $225
15 % CAGR
2001 2002 2003 2004 2005 2006
*See important disclosures regarding Non-GAAP measures on Page 3
35
Summary: Why Invest?
Since 1990, $1.9 Billion Cash Flow from Ops
Dividends Paid
($642 M)
Reinvested in Operations
($735 M)
Shares Repurchased
($477 M)
Balance sheet with $3.40 in tangible net worth per share and low corporate debt
As of 12/31/06
Excludes cash payments made regarding special items discussed on Page 3
36
Summary: Why Invest?
Dividends Per Share
(restated for stock splits) $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 $1.24*
19% Average Annual Increase
Year
1986 2007
*Indicated – On January 18, 2007, Gallagher’s Board of Directors declared a $.31 per share quarterly dividend.
37
“The Gallagher Way”,
Robert E. Gallagher, 1984 Culture Driven Success
Shared values at Gallagher are the rock foundation of the Company and our Culture. What is a Shared Value? These are the concepts that the vast majority of movers and shakers in the Company passionately adhere to. What are some of Gallagher’s Shared Values?
1. We are a Sales and Marketing Company dedicated to providing excellence in Risk Management Services to our clients.
2. We support one another. We believe in one another. We acknowledge and respect the ability of one another.
3. We push for professional excellence.
4. We can all improve and learn from one another.
5. There are no second class citizens ?everyone is important and everybody’s job is important.
6. We’re an open society.
7. Empathy for the other person is not a weakness.
8. Suspicion breeds more suspicion. To trust and be trusted is vital.
9. Leaders need followers. How leaders treat followers has a direct impact on the effectiveness of the leader.
10. Interpersonal business relationships should be built. 11. We all need one another. We are all cogs in a wheel. 12. No department or person is an island.
13. | | Professional courtesy is expected. |
14. | | Never ask someone to do something you wouldn’t do yourself. |
15. I consider myself support for our Sales & Marketing. We can’t make things happen without each other. We are a team. 16. Loyalty and respect are earned ?not dictated.
18. | | People skills are very important at Gallagher. 20. We run to problems ?not away from them. |
21. | | We adhere to the highest standards or moral and ethical behavior. |
22. People work harder and are more effective when they’re turned on ?not turned off. 23. We are a warm, close Company. This is a strength ?not a weakness.
24. | | We must continue building a professional Company ?together ?as a team. |
25. Shared values can be altered with circumstances ?but carefully and with tact and consideration for one another’s needs.
When accepted Shared Values are changed or challenged, the emotional impact and negative feelings can damage the Company.
38
